TMFDeej (99.04)

If doomsday isn't around the corner, what's next?

27

Lately I have been attempting to read as many opinions as possible from well-respected, veteran investors about the current recession as possible. While I always try to keep an open mind and expose myself to lots of different sources of information, including blogs, I value the thoughts of seasoned investors who have been there and done that and get paid to do it now much more than I value the opinion of random, faceless bloggers with trackrecords of months, not years.

I came across another fantastic article about how despite what all of the Chicken Littles out there say the current recession is not the end of the world. And this one is from a familiar voice, The Motley Fool's own Bill Mann. Many CAPS players will be familiar with Bill's work on the Hidden Gems and Global Gains newsletters. He's gone on to work at TMF's new mutual fund, The Independence Fund. There he publishes a monthly letter to investors that's always a great read. The September issue titled, Where's the Kaboom? If doomsday isn't around the corner, what's next? does not disappoint. Here's a great excerpt from it:

..many commentators and investors are still reserving their optimism, even in the face of a rapid rise in share prices and the trickle of good economic news suggesting that a global recovery may be starting. Often meeting the news with outright anger and disbelief, these modern-day Marvin the Martians ("Where's the kaboom? There was supposed to be an Earth-shattering kaboom!") have missed the global asset rally for two reasons. First, huge money isn't made when things go from "pretty good" to "really good." Instead, the biggest stock market gains have historically happened when things could be, in the words of Spınnal Tap's Nigel Tufnel, "none more black," and then improve imperceptibly. In our current situation, the economy's decision to cease collapsing triggered a massive snap-back rally.

The second reason for the backlash is that many people became wedded to their belief that the economy was collapsing and failed to consider that they might be wrong. After all, macroeconomic trends have confounded soothsayers and economists alike for millennia. Put another way, an investing thesis predicated on economic collapse leaves a whole lot of slightly less terrible -- and far more likely -- outcomes on the table...

To think that anyone knows the eventual outcome of our current economic troubles does violence to logic and common sense in equal measure. Of course, the safer position would be to join the folks in the end-of-days crowd. After all, they have most of the evidence on their side, and the events of the past two years have reinforced their position.

There's a lot more to the letter than that, but I highlighted this section because it is in keeping with the theme of my recent posts.

On a related note, I just spoke with my wife on the phone a few minutes ago. She works in HR at a firm in an industry that has been absolutely brutalized. She said that she was absolutely swamped with work. I asked her what she was working on and she replied that she had made several offers to high level candidates for positions that they had applied for at her company...but that many of them had turned them down because they had received better offers elsewhere. Now I realize that this is a very small sample size, but it just struck me as yet another piece of data from the field that the jobs market is improving. If no companies at all were hiring out there then these jobseekers would be grasping for any position that they could get, not getting multiple offers for their services.

"To think that anyone knows the eventual outcome of our current economic troubles does violence to logic and common sense in equal measure."

The author seems to claim to know the eventual outcome as he explains his reasons for the "global asset rally". Is there a possibility that he's "failed to consider that [he] might be wrong"?

I don't believe that we're looking at "the end of the world", but you even have to admit that slight improvements off a bottom don't look like a real recovery. Auto sales may be picking up, but they're picking up to a level that's still 1/3 below the industry's peak. That leaves a gaping hole in GDP, that is only plugged by gov't spending. With a huge portion of our upcoming GDP numbers coming from gov't stimulus, there is no recovery. I don't claim to know what the market will do, but the facts show that we don't have a $14 trillion economy. As to not "do violence to logic and common sense", I won't attempt to predict what this will do to our economy going forward.

"While I always try to keep an open mind and expose myself to lots of different sources of information, including blogs, I value the thoughts of seasoned investors who have been there and done that and get paid to do it now much more than I value the opinion of random, faceless bloggers with trackrecords of months, not years."

I also value the thoughts of "seasoned investors" over the predictions of "faceless bloggers". Unfortunately, I personally only know a couple of "seasoned investors"...Wallstreet veterens that have made millions and preserved their wealth for decades...and their outlook is not nearly as optimistic.

BTW - What industry does you wife work in? I work in engineering, and my company never stopped hiring engineers...it's continued to be difficult to attract engineers throughout the recession. Open sales and adminstrative positions are hard to come by, but we have hundreds of open reqs for engineers. Is your wife making many offers to low-level candidates, or are they just trying to attract high-level talent while they can?

@davejh23:I'm an engineer too, and I can partially answer your question.

The problem with engineers is that we're paid crap for our knowledge/skills. A good engineer, depending on his field of practice, can make what? 100K$, 120K$? So the guy with an iq of 150+, who's spent years studying to get his degree (at a high cost in US), can most of the time not make 150k$.

Then you have the sale rep. The guy with average iq, which has most of the time dropped out of school before getting a degree, who sells a product he most of the time knows nothing about, let alone can possibly design. The pay isn't usually that high, but it doesn't matter one bit, cause his money comes from comissions anyway, so if the engineer has designed a superior product, he gets to reap the rewards. The sales rep almost always end up making more than the engineer.

The administrative guy is either an engineer who's seen the light (and figured out that if he wants to get paid some moolah, he needs to go up the administrative ladder) or some PHB who's got that position because that's where he'll do the less damage. The first category is usually worth his salary, but the second should be fired asap and replaced by a drunken lemur, for everyone's sake. No matter his qualification, if he's the engineer's boss, he makes more than the engineer.

So I hope you understand why it's hard to hire engineers, especially talented ones. Right now if I was in a high school and a talented kid asked me if he should become an engineer, I'd say no effing way. Become a doctor or try to get an administrative position. Both jobs pay more, require easyer degrees, and are more recognized troughout society. If you want to become an electrical or computer engineer, don't do that. Instead, become a journalist and write about technology, now that's more glamorous than being an engineer and it pays almost the same but the work is freakingly easy.

That's what I'd tell a high school kid on career day. Now I'll STFU cause I feel like I've hijacked Deej's thread.

"...but you even have to admit that slight improvements off a bottom don't look like a real recovery."

Wrong! Recessions are measured from the high in GDP to the trough. That means that if there is a slight improvement off a bottom (and you seem to indicate that), the recession is over and recovery has started.

#5 My sympathy. I'm married to someone who teaches electrical engineering. His last industry job before he went to teaching he was salaried but the job had a lot of overtime. Ironically the technicians paid by the hour sometimes made more than he did. He has found teaching to be more rewarding (not the money but the fulfillment) and less frustrating. He doesn't have unrealistic deadlines to meet that some non-engineering boss has set.

So what if all you financial/economic hypochondriacs are totally missing something? What if the economy of the last few years is NEVER coming back because it was a phony economy propped up by skyrocketing debt which was itself propped up by the ridiculous notion that property values could only go up forever and ever? So what if auto sales are down and haven't picked up anywhere near their former (ridiculous also?) levels. WHAT IF THIS IS THE NEW NORMAL AND EVERYTHING IS JUST FINE? Sounds pretty simple to me. What was it I heard somewhere sometime or other, something to the effect that the simplest explanation was most often the correct explanation? Sorry to all you deep thinkers, I'm buying this one.

I do hope companies have learned a valuable lesson both about debt and about allowing themselves to be bullied around by unions.

"...but you even have to admit that slight improvements off a bottom don't look like a real recovery."

"Wrong! Recessions are measured from the high in GDP to the trough. That means that if there is a slight improvement off a bottom (and you seem to indicate that), the recession is over and recovery has started."

Leo - First, I said that this doesn't "look like" a real recovery. I never mentioned the "recession". In any case, the NBER may declare that the recession is over, by definition, but it doesn't mean that it won't be a decade or more before we return to peak auto sales, etc... US auto sales need to increase 50% to reach their peak. Our economy needs to grow 25% without government "stimulating" a huge portion of it to show "real" economic growth. It is a FACT that we would be in a depression, by definition, without $1.5+ trillion in deficit spending.

"What if the economy of the last few years is NEVER coming back... WHAT IF THIS IS THE NEW NORMAL AND EVERYTHING IS JUST FINE?"

This is what the government needs to realize. We don't need to run massive deficits to maintain our $14 trillion GDP and show growth, because we never should have had a $14 trillion GDP! This deficit spending isn't sustainable! Keynesians think that the deficit is necessary and temporary until the economy picks up and tax receipts pick up, etc... They can't understand that our economy should be smaller than it was...that we should see significant declines in GDP. As you said, "the economy of the last few years is NEVER coming back". Will the government back off and let the economy reset at a lower level?...a level from which we would see real growth? No. They'll expand government, and maintain unsustainable deficits until they destroy our economy, and crush the citizens that they claim they're trying to help.

I can't argue with that. As much as I have tried, and bought books to hopefully learn more on the subject (Economics For Dummies - yeah go ahead, laugh) they put me to sleep after I get just so far into them and I have to go back to reading about investing. So I lack the knowledge needed to debate anyone about Keynesian economics. Maybe someday I'll get that far before falling asleep. But I still do believe that the false economy is dead and will not return and it should be a good thing. So alarmist's cries about the sky falling because auto sales are way down from where they "should" be as compared to an economy that was artificially pumped up by bad lending practices and securitizing loans that should never have been made sound like so much paranoid noise to me. But I think it sounds to me as if I would probably agree with you about the government trying to maintain an unreal level of GDP if only I knew more about Keynesian economics.

The job market has been thawing out, too. I should know --- I've been looking since January and I've been unemployed since July.

I knew my company was going to lay off eventually (just had a hunch), so I started looking in January and I think from January to August, I might have gotten 1 interview.

In August and September, I've gotten 8 interviews and I was just offered a job with a CPA firm this week; I start on Monday. :)

I'm actually moderately pessimistic on the American economy long-term (which contrasts with my stock market bullishness since last October) --- but these doom-and-gloomers exaggerate everything and seem to have an ideological attachment to negative economic news. They are the recession's equivalent David Lareah (former "Economist" for the National Association of Realtors).

I think the market is about fairly valued right now. In the short-term, it might go up; it might go down; who knows. People betting all their money on it going down are only harming their own wallet.

Congrats on your new job, jakila. I'm (lucky? really?) lucky enough to be poor but living in an area where most people I know are just as poor as I am if not moreso,,I probably don't make near as much money as a lot of people on this site but then I never felt the recession either. My job's very secure, Nobody around here seems to have any desire to try to take my $8.85/hour job. There aren't many jobs here, people don't move here to work, they move here to retire. This area (Ozarks) is a resort area. Shuts down all winter. I do nothing from mid - November to March 1st but cash unemployment checks and dividend checks. Fine by me. I won't be moving anytime soon just to better understand how miserable everyone else in the country is. Seems to me like I have it made. I'm not rich...but I'm not as poor as it sounds either. I've saved and invested $2500 or so this summer...all on my little ol' $8.85/hour. You know why? Because the rest of the country, at least the ones who come here for vacations....they don't seem to be feeling all that insecure either. They have worked my ass off this year. This is the busiest year I've ever spent working for this outfit and I've been there since 2004. These people who vacation here certainly didn't seem like they felt like they'd better cut back because their job may be gone next month. They worked me half to death and I'm glad its finally slowing down. All these doom-and-gloom types absolutely do not want any part of hearing this. But its the truth. How the hell does someone who makes $8.85/hour save that much money in 4 or five months if they haven't gotten an obscene number of hours?